Florida House and Senate Agree on FRS Reform!

The changes are substantial, but not nearly as dire as Governor Scott wanted. Employees to contribute 3%, DROP stays at 1.3%

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It appears we have a Final Agreement between the House and Senate on changes to the Florida Retirement System.  The changes are substantial, but not nearly as dire as Governor Scott wanted.  There will be NO changes for those already retired, or those already in the DROP, your benefits remain the same. Many of the more radical changes only affect those hired after July 1, 2011.  Changes for new hires only are:

For members after July 1, AFC become the highest 8 fiscal years.

Increases retirement age for all new hires after July 1:

Regular Members normal retirement age will go from age 62 to age 65, or from 30 years of service up to 33 years of service.

For Special Risk Members the normal retirement age will jump from age 55 up to age 60, and the years of service to retire goes from 25 years up to 30 years.

Vesting requirements will go from 6 years of service up to 8 years (new hires)

 

Changes the will affect current members in FRS are as follows:

First, there is good news and bad news for the Deferred Retirement Option Program.  The DROP program is maintained, but the interest rate paid on the DROP accounts will go from 6.5% to 1.3% for those who enroll after July 1, 2011.

While this is a significant rate decrease, for Regular Members it probably doesn’t eliminate DROP as a viable program.  As an example, a Regular Member with an AFC of $50,000, the DROP amount at 6.5% would have been approximately $150,000. (Under the new rate, that benefit would have decreased to around $132,000if the COLA remained).  If the COLA is eliminated on DROP ( but we believe it will not be eliminated for DROP payments, as you will be entitled to the pro-rated pension payments that are deposited into your DROP account) the DROP benefit will be reduced to about $124,000.  While the loss of $26,000 is significant, it remains an option that will allow you to have a nice lump sum.

All members will be required to make a 3% Contribution for all members on gross compensation.   There will be NO contribution for members who in the DROP.

In what we believe to be the most devastating change, members will no longer receive the Cost of Living Adjustment (COLA) on service after July 1, 2011. The initial language implies the COLA will return to 3% after July 1, 2016 (but we would be very leery of that actually occurring.  This could well be a seemingly soft introduction of the benefit reduction).  The formula for a members COLA will be –  ( service years prior to July 1, divided by total service years, multiplied by 3%).  For instance, if you have 25 years in as of July 1, and continue to work for another 5 years, your COLA calculation will be;   25/30 times 3%, or .83333 times 3%, or a COLA of 2.5% for your retirement.

COLA is a huge factor, not only in members ongoing Pension payments, but as it reduces the pension significantly over time, it will have a serious negative effect on the Lump Sum value that members could transfer to the Investment Plan.  For a member retiring at age 60 (the FRS average) and living to 84, the COLA allows a members pension to double in that time frame.

It appears this is the final proposal, and has been agreed upon by both the House and the Senate.  It will go to the Governor for his signature by May 31, which would make it officially become law and effective with the start of the fiscal year beginning July 1.  The other option the Governor has would be to veto any or all of the proposals.  Governor Scott has indicated if he doesn’t get the budget cuts he wants, he will veto the bill – so it will be interesting to see what happens.  If he veto’s the changes, they will not become effective until the legislature can come to an agreement with the Governor.  Last year you might remember the legislature wanted to cut the interest rate on DROP from 6.5% to 3%, and Governor Crist vetoed it, so no change took place.

We will be posting situations and scenarios over the next few weeks to assist FRS members in making choices as to which FRS Options would be the optimal choice for them.  There is time to plan and implement any changes you may deem attractive before the law and changes take place.

 

  • http://www.floridaretirementsystem.info FRS Options

    1130 is no longer a valid bill, the legislative agreement has replace it.

  • http://www.floridaretirementsystem.info FRS Options

    No. You DROP payments are based on your pension, which is set when you enter the DROP.

  • http://www.floridaretirementsystem.info FRS Options

    If you are enrolled by the end of June, you will get 6.5%. If you wait a year, you will get 1.35. Your pension going into the DROP will be one year higher, so you can do the math and see which is higher.

  • http://www.floridaretirementsystem.info FRS Options

    I suspect it will be determined by the actual date of retirement, and not the day you signed up to retire. That said, I don’t see where it will have any affect. You will get your COLA for all years of service prior to July 1, which would be all of yours.

  • http://www.floridaretirementsystem.info FRS Options

    The 403B and ORP are different animals, and are probably not interchangable. As far as I know, the employee contribution is mandatory, and there is no way that I am aware of to opt out of it.

  • http://www.floridaretirementsystem.info FRS Options

    I don’t know enough about you or your situation to say what would be best for your. If you are high risk the options are good either way, but I would have to know how many years you have in now to even do the math.

  • http://www.floridaretirementsystem.info FRS Options

    FRS rules are by statute, and statute is set by the legislators. It is hard to cut budgets if they were to give employees raises to offset the contribution – that would no make much sense. I believe SS, Medicare, etc are base on Gross, and all come out before taxes.

  • http://www.floridaretirementsystem.info FRS Options

    I’m going out on a limb here, and guessing that the people investing the money at FRS will do a better job than the majority of individuals who are members. It is what they do. The Governor does not appoint the other trustees, they are elected. The oversee, they don’t do the management. The proof is in the pudding, FRS is one of, if not the best managed public pension in the Country. It is managed by people who do it as a career, and do it exceedingly well. We need to stop looking for things to complain about, there are enough that are self-evident without trying to find more.

  • http://www.floridaretirementsystem.info FRS Options

    If you move to the Investment Plan now it will have no affect, as your lump sum to date is already determined with all of your precious COLA. If you plan to move to the lump sum 20 years from now, it will have a major effect, as you will have the next 20 years of no accumulation of COLA.

  • http://www.floridaretirementsystem.info FRS Options

    OK, we have answered this one about 100 times, so here goes the 101st. The employer contribution is reduced by the employee contribution. The total remains the same. There is no “added” money, and 100% of the contributions go to FRS and FRS only.

  • http://www.floridaretirementsystem.info FRS Options

    I really can’t say. I don’t think it is a “bill”, as it is not proposed to the legislators as such. It is an agreement that will go straight into the budget. The statutes will change, but I have no real idea of when we can see it on the internet sites.

  • http://www.floridaretirementsystem.info FRS Options

    I’m sorry TallyTom, I’m not sure what you are referring to. There are so many questions and comments, that they get out of order and context. If you have 30 years of service prior to age 57, you can defer DROP until 57. Teachers have some elements that are different than the regular rank and file, so you might have to give me a more specific question in order for me to help.

  • http://www.floridaretirementsystem.info FRS Options

    Again, I’m not sure what you are referring to.

  • http://www.floridaretirementsystem.info FRS Options

    Again, I’m not sure what you are referring to.

  • http://www.floridaretirementsystem.info FRS Options

    Yes, provided you have those 28 complete years by July 1, otherwise you might get slightly less for the last year.

  • http://www.floridaretirementsystem.info FRS Options

    I don’t think so, and if you could – you would probably still have to make the employee contribution.

  • http://www.floridaretirementsystem.info FRS Options

    The rules for FRS are for all members. If you local agency belongs, then they follow the same rules. Truth is, the majority of FRS members are “local government agencies”.

  • http://www.floridaretirementsystem.info FRS Options

    Are you looking at 1128 for local pensions, or FRS?

  • http://www.floridaretirementsystem.info FRS Options

    I think you are confusing local pensions (1128) with FRS. The article sited does not pertain to FRS.

  • Susan Schneider

    I do not understand your response. The QDRO has no impact on my ability to enter DROP now or later. It simply reduces the amount I will receive because a portion will be going to my former spouse. That remains true whether I enter DROP now or later. I am trying to decide whether it benefits me more to enter DROP prior to July 1, 2011 in order to get the current benefits or to work a few more years before I enter DROP. If I enter DROP after 7/1/11, I will miss the current interest rate of 6.5% but work longer and increase my benefit by more years of service. I do not understand your statement of “Your pension going into DROP would increase by almost 11%.” Thank you for helping me to understand.

  • http://www.floridaretirementsystem.info FRS Options

    The point I want to emphasize EMPHATICALLY, is there is more to consider than the rate of interest you earn on DROP. After DROP is over, you will collect the pension for the rest of you life – which needs to be factored in.

    When you enter the DROP, you technically retire and begin to collect your pension. Since you are allowed to continue to work for a few more years, that monthly pension check is deposited into your DROP account, and interest is earned on the balance (at 6.5% or 1.3%).

    If you enter DROP now, you pension check will be 37 times 1.68%, or 62.16% of your AFC. Your DROP account (at 6.5%) will accumulate to about $194,000. After DROP is over, those monthly pension checks will be sent directly to you for the rest of your life. If we assume your AFC is $50,000, that pension will be 62.12% of your AFC of $50,000, or $31,000 per year.

    If you wait 4 years to enter the DROP, and your AFC remains unchanged, your pension that funds the DROP will be 41 years times 1.68%, or 69% of your AFC. At the end of a 5 year DROP period, your DROP account would accumulate about $189,000. Your pension would be 69% of the $50,000 AFC, or $34,500.

    If you enter DROP now and get the bigger interest rate, you will accumulate around $5,000 more in the DROP, but you annual income will be $3,500 per year less FOR THE REST OF YOUR LIFE.

    In other words, you need to choose between $5,000 once, or $3,500 for the rest of your life. That is the math, the decision is yours.

  • http://www.floridaretirementsystem.info FRS Options

    The 175/185 plans play under different rules than FRS, so trying to understand one instead of the other will be difficult. In FRS, I believe the employer contribution is made regardless of DROP. Honestly, I am not that well versed with the 175/185 plans, but I suspect they follow the new local changes of SB 1128. Sorry I can’t help you any more than that.

  • http://www.floridaretirementsystem.info FRS Options

    Probably, and it probably should. The perception, and the reality is, quitting so you can collect a pension, and then going back to work at the same job you just quit is hard to rationalize. If you need to work, then maybe you shouldn’t retire. I understand that we have been playing by the rules the legislators allowed, but logic says the rules should be changed to avoid that conflict.

  • http://www.floridaretirementsystem.info FRS Options

    FRS needs to remain solvent, and the governments need to cut costs. Actuarially, it requires significantly more money be contributed to FRS in order to fund the 3% cola. It isn’t “meanspiritedness”, it is really just economics. The higher the benefits, the more the employers and employees must contribute to make it work. Since there are higher and higher numbers of retirees collection pensions, and fewer active member working to support the system, sooner or later costs (benefits) will have to be reduced or the contributions will be too large to handle.

    If you contribute 3%, you are entitled to a refund if you leave. The employer contributions stay with FRS (not the state general fund) and those contributions help keep the system sound.

  • Humble

    Confused!!!!!!!!!!!!!!! the next five years all cola for eveyoen is frozen???
    this will all be done and complete by friday????

    all overtien will be taxed 3 percent but not counted in your afc????

    Im truly confused and disappointed in the system –however thank you fopr all ypour time and energy—imagine the day no one will be avle to afford legal challenges!@

  • http://www.floridaretirementsystem.info FRS Options

    Hopefully this will help to unconfuse:

    COLA is suspended for 5 years, though you will get credit for all of the time you have up until July 1.

    You WILL pay 3% on your overtime, but you still get to count it toward you AFC.

    The system isn’t all bad, you have a good job in trying times, and you will keep most all of your benefits.

  • http://www.floridaretirementsystem.info FRS Options

    My experience is the DROP is not nearly so attractive to Special Risk as it is for regular. Because you will only be 47 when you have your 25 in, it would be worth looking into the Investment Plan at that time. I suspect you will find it to be attractive. In the meantime, you don’t want to do anything until you have your 25 in.

  • http://www.floridaretirementsystem.info FRS Options

    First of all, keep in mind neither bill means anything. This was ironed out by two guys in a room, and really had nothing to do with the proposed bills. You enroll in FRS the day you started working for an FRS participating employee. I don’t think the changes apply to anyone but those who “enroll” after July 1, which, as we see it, means new hires. You don’t enroll for you pension, you enroll as a member of FRS.

  • Anniesmyaka

    I was recently hired (February 28th) by a state agency with this plan and I turn 45 this year. I just received the packet and need to make a choice.Which plan under these new provisions would be most beneficial to my situation. (pension vs. investment) I plan to stay as long as they will keep me, (pending any further budget cuts) Also, how will my hire date affect the choice I make? If I’m understanding this I will fall under the “old” plan with a retirement age of 62? Thank you for your assistance, and for providing this invaluable information.

  • FL-Exile

    Average final compensation (AFC) is the average of the five highest years of salary
    earned during covered employment. Salary records are kept for retirement purposes by
    fiscal year (July 1 – June 30). Certain kinds of payments, such as lump-sum sick leave
    payments, retirement incentive bonuses, and lump-sum annual leave payments in excess
    of 500 hours, cannot be included in the AFC.

    Lump-sum sick leave payments are not included in AFC.

  • http://www.floridaretirementsystem.info FRS Options

    It would not seem that new legislation has any input on your plans. Without knowing anything about your personal situation it would be very difficult to make an assessment of what would be the “most beneficial to my situation”. If you are thinking you will be there a short time, the Investment Plan would be worth looking into.

  • Dyillow

    Does this raise the years required to vest for university employees hired in 2005 but who have been in Investment Plan until August 1, 2011?

    Are they closing the pension plan to new second elections by employees hired in 2005 but who opted for investment plan at the time?

  • salvador

    My normal retirement date is 7/1/11 at which time I will have completed 30 years of normal risk service at age 52. I would like to join the DROP 7/1/11 with the goal of completing 5 years in the DROP and would like to know how these various rule changes will effect me. Thanks for the help

  • http://www.floridaretirementsystem.info FRS Options

    I don’t believe it changes either of those things.

  • http://www.floridaretirementsystem.info FRS Options

    If your DROP eligibility date is 7/1, and you can not get in prior to that, you will probably get the lowered interest rate on your DROP funds. That could effectively lower you DROP amount by about 13%

  • Anonymous

    Is this 13% reduction based on the 1.3% rate as well as no COLA on the accumulation?

  • http://www.floridaretirementsystem.info FRS Options

    13% is based on the 1.3% interest, and you will get COLA, just at a pro-rated rate. If you are close to your DROP eligibility, the 13% should be close enough for considering your options.

  • http://www.floridaretirementsystem.info FRS Options

    I don’t beleive they changed the rules for vacation time or accumulated leave. However it was, it still should be.

  • http://www.floridaretirementsystem.info FRS Options

    You may use your “2nd choice election” and move from the pension to the Investment just before retirement, and take a lump sum based on the present value of the pension.

  • http://www.floridaretirementsystem.info FRS Options

    I guess that depends on how you define minimal. Simply divide your years of service up to July1 by the total years of service and it will give you the percentage of the 3% COLA you can expect. If you have 28.5 years in now, it would be fairly minimal. If you only have 5 years in now, it could be substantial.

  • http://www.floridaretirementsystem.info FRS Options

    I would bet on the Governor trying to make more cuts next year. The real question is whether the legislator will pay any more heed to him next year than they did this year. If the economy picks up, and the budget isn’t at a huge deficit, one would think they will have a tough time rationalizing cuts. I would never recommend someone do something in advance of what maybe, could happen, possibly at some point in the future.

  • Cubangem

    So what you are saying is wait and see if any new bills come up in March or April of next year, by June (which is when I turn 62) we should have a better idea at which time I can join DROP and not wait another month (July) Much like everyone that turns 62 this year by June is doing, hurrying up to join DROP!

  • Caorso1

    Thank you for providing this forum. It is helpful. I would like to know how these changes are affecting the pensions of the legislature?
    Thank you!

  • http://www.floridaretirementsystem.info FRS Options

    What I am saying is, you can’t possibly make lifetime choices on what you think might or could happen. Most all legislation leaves sufficient time to act, so unless your crystal ball is really, really clear, you might wait and see.

  • http://www.floridaretirementsystem.info FRS Options

    Exactly like the affect yours. The legislators are members of FRS, and the changes are the same for them as all other FRS members.

  • http://www.floridaretirementsystem.info FRS Options

    I don’t know how the legislature could force an employer to terminate someone. While the DROP might change, the rules are IRS rules, so it is doubtful. Even if they could, what would it accomplish? Terminating jobs at the county level would hardly benefit the state?

    It seems like FRS members are trying to find conspiracies and malicious motives behind every corner. There are some changes being made that single out public workers, but I suspect it is the easiest place to find money, and not a personal vendetta against all public workers by all legislators.

  • http://www.floridaretirementsystem.info FRS Options

    This is what?

  • http://www.floridaretirementsystem.info FRS Options

    The will recieve COLA, nothing will change.

  • http://www.floridaretirementsystem.info FRS Options

    Not that I am aware of.
    There isn’t one.
    No, May 6 has no special significance.
    No.
    Most laws are agreed to during the legislative session, and given to the Governor to sign by May 31, then enacted by July 1. It doesn’t have to happen that way, and theoretically, the could enact them and make them retro-active. The current agreement will be sent to the governor with the overall budget, for him to either sign or veto by May 31. Since Florida has a balanced budget amendment, at least the budget needs to be decided in a timely manner.

  • http://www.floridaretirementsystem.info FRS Options

    I apologize, but with hundreds of people writing in, it is impossible for me to piece together threads of comments from previous comments. I would ask that comments or questions be made as a complete thought, with all the pertinent information, so that I can better know what is being referred to.